Let's break down and solve the prompt step-by-step, focusing on the **liquidity analysis** using the **current** and **quick ratios**. We'll compare year-over-year changes (2025 to 2026) and benchmark to industry averages. --- ## 1. **Find the Relevant Data** From the image, we have: #### **Industry Average Data for 2026:** - **Current Ratio**: 1.7x - **Quick Ratio**: 1.0x #### **Company Data:** - **2026:** - Current Ratio: 2.0x - Quick Ratio: 1.2x - **2025:** - Current Ratio: 1.6x - Quick Ratio: 0.9x --- ## 2. **Calculate Percentage Changes (Year-over-Year)** ### **Current Ratio Change** \[ \text{Percentage Change} = \frac{\text{New Value} - \text{Old Value}}{\text{Old Value}} \times 100 \] \[ \text{Current Ratio Change} = \frac{2.0 - 1.6}{1.6} \times 100 = \frac{0.4}{1.6} \times 100 = 25\% \] ### **Quick Ratio Change** \[ \text{Quick Ratio Change} = \frac{1.2 - 0.9}{0.9} \times 100 = \frac{0.3}{0.9} \times 100 = 33.33\% \] --- ## 3. **Compare to Industry Averages** - **2026 Current Ratio:** - Company: **2.0x** | Industry Average: **1.7x** - **Above industry average** - **2026 Quick Ratio:** - Company: **1.2x** | Industry Average: **1.0x** - **Above industry average** --- ## 4. **Provide Explanations for Changes** - **Current Ratio increased by 25%**: Indicates the company now holds **more current assets relative to current liabilities** than last year. - **Quick Ratio increased by 33%**: Shows improvement in the company's ability to pay short-term obligations **without relying on inventory**. **Possible reasons for this improvement:** - Increase in cash, receivables, or other liquid assets. - Reduction in current liabilities (e.g., better management of short-term debt). - Faster collection of receivables or slower payment to creditors. --- ## 5. **Analysis and Interpretation** ### **Year-over-Year Analysis** - The company’s liquidity position has **strengthened** from 2025 to 2026. - Both the **current** and **quick ratios** have increased significantly. - **Quick ratio** increase is especially notable (33%), meaning liquid assets (excluding inventory) have improved or current liabilities reduced. ### **Benchmark Comparison** - Both ratios are **higher than industry averages** in 2026. - **Current Ratio** (2.0 vs 1.7) and **Quick Ratio** (1.2 vs 1.0) indicate the company is more liquid than peers, potentially less risky for creditors and investors. --- ## 6. **Concise Financial Analysis Statement** The company’s liquidity, as measured by both the current and quick ratios, has **improved significantly year-over-year** (25% and 33% increases, respectively). Both ratios now **exceed industry averages**, indicating a **stronger ability to meet short-term obligations** compared to competitors. This improvement could be attributed to increased liquid assets, better receivables management, or reduced current liabilities. Overall, the company’s liquidity position is favorable and suggests prudent financial management. --- ### **Final Answer (Summary Table)** | Ratio | 2025 | 2026 | % Change | Industry Avg (2026) | Above/Below Industry? | |---------------|------|------|----------|---------------------|-----------------------| | Current Ratio | 1.6 | 2.0 | +25% | 1.7 | Above | | Quick Ratio | 0.9 | 1.2 | +33% | 1.0 | Above | --- **Conclusion:** The company’s year-over-year liquidity position has improved and is now better than the industry average, indicating robust short-term financial health.